San Jose Nixes "State of Fiscal Emergency" but Will Study Reduction of Retirement Benefits

The city council of San Jose this afternoon (May 24) voted 8-3 against the mayor's proposal to declare a state of fiscal emergency, but voted to study various suggestions for reducing retirement benefits, according to the San Jose Mercury News. The city faces a $115 million deficit, its 10th straight shortfall, and half of it is driven by soaring pension costs, says the Mercury News. Today's vote sets up a June 21 showdown at which the council will vote on formally declaring the emergency and decide which pension reforms might go on the ballot in November.

The finances of cities, counties and states are under siege. Chuck Reed, an old military man who is now mayor of San Jose, has decided to go nuclear.

While leaders of other struggling jurisdictions negotiate with public employee unions for relief, or flirt with bankruptcy filings, or propose laws to limit employees’ collective-bargaining rights, Reed has declared a state of fiscal emergency in his sprawling city of nearly 1 million people. The City Council is expected to make the declaration official at a meeting on Tuesday, imposing sort of the government-finance version of martial law.

In theory, at least, a state of emergency will enable Reed, a popular Democrat, to amend contracts and benefits packages of the city’s employees and retirees. Most significantly, in what may become a test-case with national implications, Reed is asserting that public employees have no “vested rights” to the specific terms of their pension plans and benefits going forward. (Already-accrued benefits would not be affected.)

The city’s unions are certain to fight him in court. And there’s a good deal of case law on their side. “No jurisdiction in California has ever, ever succeeded” in stripping away a public employee’s vested rights using a fiscal emergency as justification, said Robert Bezemek, an Oakland labor lawyer.

But Reed, a Stanford-trained lawyer himself, is confident that any judge hearing a union challenge will be persuaded that the direness of San Jose’s financial situation justifies his actions. And Amy B. Monahan, a law professor at the University of Minnesota who is an authority on pension law, said any decision in his favor would be closely watched around the country. “It’s highly relevant to what a lot of other cities and states are grappling with right now,” Professor Monahan explained.

Reed, 62, is an unlikely revolutionary: he is a former Air Force officer, Princeton man, father of a much-decorated fighter-pilot daughter and has been married for more than 40 years. Elected to a second and final term last June with 77 percent of the vote, Reed said he had no further political ambitions and would return to his private law practice. He knows he is proposing a drastic assault on what has been contractually promised to public employees.

Yes, I saw the NY Times article online but relied on the San Jose Mercury News online edition for news on yesterday's (May 24) vote by the city council. Possibly the showdown on these issues will be in San Jose, not Wisconsin or some other place now seem as most likely. Best, Don Bauder

But as a former military man, he is convinced that the ends justify the means. “I’m trying to avoid a disaster,” he said in an interview in his office Wednesday. Pension and retiree health costs now consume half of the city’s budget, Reed said. Five years from now, when those costs most likely will climb to $650 million if nothing is changed, civic life for San Jose’s residents will be unrecognizable, he predicts. After making its pension payments, the city will be unable to afford to offer almost any services and it will be able to afford to employ only 1,600 of its 4,200 employees.

Reed offered this picture of life in San Jose: “A volunteer fire department, a mostly volunteer police department, and not much else. All libraries except Martin Luther King would be closed. All community centers, most likely closed. You cannot manage the 10th-largest city in the country with 1,600 employees and a volunteer fire department. It is impossible. It cannot happen.”

The city’s unions complain that Reed did not really discuss pension reform measures with them before declaring the fiscal emergency. “I don’t think consensus building has ever been his strong suit,” Jim Unland, vice president of the city’s police union, said drily. “His tactic dictates a fight. That’s insane.”

Reed said that because key unions (though not the police union) view the city’s financial projections as “imaginary,” negotiations are pointless. Some of his proposals require amending the city’s charter, and he’s determined to put those on the November ballot, so that they can take effect by the 2012-2013 fiscal year.

Mayor Bob Foster of Long Beach said he was glad to see Reed leading the charge against the legal doctrine of vested rights. A victory in San Jose, Foster said, “would plow very new ground.”
The law does evolve, and change certainly appears to be in the air. A February report by California’s independent, non-partisan Little Hoover Commission said “the state has no choice” but to adopt measures similar to those Reed is pursuing. “Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers,” it said, “and make changes to pension formulas going forward.”

Easier said than done. But Chuck Reed, all steely determination and grim resolve, is committed to leading the charge.

The problem, in my judgment is that some municipal workers, such as firefighters and police, have excessively generous pension benefits. Retirement at age 50 with 90% or more of one's salary is far beyond the ability of governments to pay. But some government workers, such as school teachers and environmental workers, have modest retirements as well as pay. These questions have to be addressed. Similarly, issues such as nepotism and part-time work among FFs should be studied carefully and considered in reform efforts. The bottom line is that overly-generous payouts are financially breaking cities and states. We just can't sit by while it happens, as San Jose's mayor says. Best, Don Bauder

Well, JW, what are you wondering tonight? Are you wondering if this might come to pass? Are you wondering if it could spread to San Diego? Are you wondering if it could affect you? What ARE you wondering? Tell us. Inquiring minds want to know.

You can bet that the police and firefighter unions will fight any reform efforts in any city or state with all the money and lobbying muscle they can muster. That's one reason that bankruptcy is the answer for many government entities such as San Diego. Best, Don Bauder